Spirit Airlines backs $600mn bonds with loyalty schemes

Spirit Airlines (NK, Fort Lauderdale Int’l) is planning to issue USD850 million in five-year bonds via two newly created Cayman Islands-based subsidiaries, in a private offering to eligible purchasers, it revealed in a statement on August 31. Spirit and “certain subsidiaries” of the company will guarantee the senior secured notes due in 2025, and the bonds will be secured by the discount carrier’s two loyalty programmes – a subscription service called the $9 Fare Club and a traditional points scheme called Free Spirit – as well as other intellectual property linked to its brand. Third-party appraisal has estimated the combined value of these loyalty scheme “core assets” to be around USD1.9 billion and the value of the company’s brand intellectual property to be approximately USD1 billion, Spirit said in a Form 8-K advisory. For the year ended December 31, 2019, the company generated USD63.7 million from $9 Fare Club subscriptions, it added in the advisory, and between 2015 and 2019 the programme had a compound annual growth rate of 9%. At Free Spirit, which like other points schemes generates much of its revenue through credit card partnerships, card companies bought USD49.4 million in points last year, according to the airline. Buoyed by a new deal with Bank of America, finalised in August, Spirit said that by the end of 2024 it expects to be earning USD100 million per year through its card programme, double the amount in 2019. In a statement on the offering dated August 31, the ratings agency Fitch assigned it a rating of BB+/RR1, signifying a higher degree of default risk. While saying that the nature of the collateral “provides compelling motivation for the airline to affirm its obligations in a bankruptcy scenario,” it cautioned that “the value of the assets largely rests on Spirit continuing as a going concern. Liquidation of the airline would materially impact the collateral values and weaken recovery.”